View from The Hill: Joyce could be facing waves at a judicial inquiry after the election


Michelle Grattan, University of Canberra

It’s hard to believe Barnaby Joyce really wants to lead the Nationals again. Of course everyone knows he does, desperately, but his unhinged ABC interview with Patricia Karvelas on Monday showed a breathtaking absence of political judgement or personal restraint.

Joyce went on the program to defend his conduct in the 2017 A$79 million water buyback from two Queensland properties owned by Eastern Australia Agriculture (EAA).

Regardless of how his approval of this deal will ultimately be judged, his shouting, interruptions and at times absurd language drowned out any chance of his getting his points across.

Joyce loyalists will see it as Barnaby-being-Barnaby. But it was further reason for Nationals to despair about the parlous state of their party, as they watch an ineffective leader and an out-of-control aspirant.

The Joyce interview made it harder for the government to manage this big distraction in a messy second campaign week.

The controversy over the water purchase is based on an old story; the election has enabled it to be resurrected for a powerful fresh spin around the political circuit.

Water expert Quentin Grafton, professor of economics at the Crawford School at the Australian National University, lays out the issues.

Grafton estimates the Commonwealth paid about $40 million too much for this water. He identifies three areas of concern: the government’s failure to get value for money (remembering this was floodwater, which is unreliable); the lack of transparency in the deal, and the nature of the process – a negotiated sale rather than an open tender.

Much has been made of EAA being a subsidiary of Eastern Australian Irrigation (EAI), which is based in the Cayman Islands, a tax haven. This does, however, seem an irrelevance in the context of the value for money issue.

Also, it is one thing to say tax avoidance structures should be cracked down on, quite another to suggest the government should decline to deal with a company with a structure that accords with the law.

There has also been talk about Energy Minister Angus Taylor. As a business consultant Taylor helped set up the two companies and was a director of each.

But according to Taylor’s office he ended all links before entering parliament, never had a direct or indirect financial interest in EAA or any associated company, had no knowledge of the water buyback until after it happened, and received no benefit from this transaction.

So the questions in this affair centre on the conduct of the Agriculture Department and its then minister.

Grafton says: “Either the public servants were incompetent in relation to understanding value for money – or there’s an alternative explanation.”

The department is sensitive, taking the unusual step during Easter (and in the “caretaker” period) of issuing a statement defending its actions. It said it had done “due diligence”. The water purchase had been consistent with Commonwealth Procurement Rules “and paid at a fair market rate, as informed by independent market valuation,” the statement said.




Read more:
Australia’s ‘watergate’: here’s what taxpayers need to know about water buybacks


Joyce is known in general to have been a meddling minister.

In this case, he insists he followed departmental advice in approving the purchase, and had been at arms length from the deal.

“My role was never to actually select a purchaser or to determine a price,” he told a Tuesday news conference. But he approved the authority to negotiate without tender, and imposed conditions, including having the department report back to him before finalising the deal.

The current Minister for Agriculture and Water Resources, David Littleproud, tried to stem the damage on Tuesday by asking the Auditor-General to inquire into the matter. Littleproud added a political twist, requesting the audit to look back as far as 2008, to encompass Labor’s period.

But this wasn’t going to satisfy Labor in an election campaign.

The opposition had demanded documents by the end of Tuesday; predictably, it didn’t get what it wanted.

Bill Shorten had already flagged the need for a judicial inquiry.

Late Tuesday, environment spokesman Tony Burke accused Scott Morrison of “trying to cover up his government’s incompetence, chaos and potential misconduct”.

“It is now clear that there needs to be an independent inquiry into the Eastern Australia Agriculture scandal, with coercive powers so that Australians can get the truth,” Burke said. (That inquiry, however, wouldn’t be probing Labor deals.)

If Labor wins on May 18, yet again we will see a government launch an investigation into the conduct of its predecessor. If this comes to pass, Joyce will find himself in the witness box, a prospect he seems to relish – at least now.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia’s ‘watergate’: here’s what taxpayers need to know about water buybacks



File 20190423 15224 l8c00.jpg?ixlib=rb 1.1
The federal government committed to reducing water extraction from the Murray-Darling Basin.
Shutterstock

Lin Crase, University of South Australia

In 2017, the then agriculture minister, Barnaby Joyce, signed off on an A$80 million purchase of a water entitlement from a company called Eastern Australia Agriculture.

The problem is that Energy Minister Angus Taylor used to be a director of Eastern Australia Agriculture – though he didn’t have a financial interest – and the company is a Liberal party donor. What’s more, the value of the water purchased for A$80 million is under question.

Now, as the election looms, this issue has resurfaced. But why should taxpayers be concerned?




Read more:
Is the Murray-Darling Basin Plan broken?


Water buybacks using an open tender were halted by the current government in 2015, even though this is the most cost-effective way to set aside water for the environment. Instead, the government pronounced that subsidies for irrigators were a better deal.

Until 2015, the government bought back most water using an open tender process, before it was replaced by a subsidy scheme for irrigation and occasional closed tenders.

The problem with the closed tender process is that it tends to lack transparency, which raises questions about how effectively the government is spending public money. And it’s hard to prove closed tenders deliver the most cost effective outcome.

The Murray-Darling Basin is a very productive agricultural zone and its rivers have been used to boost agricultural outputs through irrigation.

State governments spent much of the 20th century allocating this water to agricultural users. By the 1990s it was clear too much water was being extracted. This resulted in both harm to the river environment and potential reduced reliability for those with existing water rights.

Various attempts to rein in extractions were made around this time, but ultimately the Murray-Darling Basin Plan was adopted to deal with the problem.

In agreeing on the plan, the federal government committed to spending A$13 billion to reduce the amount of water being extracted from the Murray-Darling Basin. To accomplish this the government has two basic strategies.

One involves buying up existing rights for water use. The other hinges on using subsidies so farmers use less water when irrigating.

Reducing water extraction from the basin

The second approach of using subsidies is generally more politically appealing. This is because few farmers ever object to receiving a subsidy and the public has an affinity with the idea of “saving” water.




Read more:
Damning royal commission report leaves no doubt that we all lose if the Murray-Darling Basin Plan fails


The problem, however, is that subsidies are a more costly way of returning water to the river system than simply buying back existing water rights. And so-called water savings are hard to measure how much water savings are a result of subsidies or some other factor.

This is why some analysts even claim subsidies are reducing the level of water available for the environment.

Buying back water rights is generally more cost-effective than providing subsidies. But a clear and transparant process still matters because water rights are not the same for everyone and it’s a complex process to determine their overall value.

Allocations and entitlements

First, most water users hold a legal right, known as an entitlement. Water entitlements represent the long-term amount of water that can be taken and used – subject to rain, of course.

Second, water allocations represent the amount of water currently available against a given entitlement – this is the water that is available now.

If a farmer owns an entitlement in the River Murray, chances are the annual allocation will be determined by how much water has flowed into upstream storages like Hume Dam, Dartmouth Dam or Lake Eildon.

Even then the allocation will vary, depending on which state issued the original entitlement. For instance, New South Wales water is generally allocated more aggressively. This means NSW entitlements tend to be less reliable in dry years than Victorian or South Australian entitlements.

If a farmer owns an entitlement where there are no upstream storages, as is the case with much of the Darling River system, then the allocation will vary depending on how much water is flowing in the river.




Read more:
Discontent with Nationals in regional areas could spell trouble for Coalition at federal election


So what?

All of this means the amount of water that can actually be used for the environment when an entitlement passes to the government will depend heavily on the underlying characteristics of the water right.

Partly for this reason, water buybacks were historically conducted using an open tender process.

This meant the government would announce its willingness to buy water entitlements. Farmers would then notify the government about what entitlements they held and the price they were prepared to take.




Read more:
Investors and speculators aren’t disrupting the water markets


Running an open tender allowed the government to assess the value for money of the different entitlements on offer at the time.

Water buybacks through open tender began seriously in about 2007 to 2008. This meant the price owners were prepared to sell for would be registered, and then the government would determine which offer provided the best value. Around 60% of all water now held for the environment by the Commonwealth was secured through open tenders.

As a general rule, a relatively high-reliability water entitlement was bought for about $2,000 per megalitre and this has become the metric for many in the market. But the current government halted this process in 2015.

Now, the government buys water through direct negotiation with water-entitlement holders.

The government justified ending open-tender buybacks on the basis that the water being secured was causing undue harm to rural and regional communities. And, instead, much more expensive subsidies would supposedly generate a better overall return.

This view is not universally shared. The receipts from openly tendered water entitlements were being used by many farmers to adjust their business, while still staying in the region.

Many rural communities continue to thrive, regardless of the strategy chosen to secure water for the environment. Subsidies also tend to favour particular irrigators rather than the community in general.




Read more:
Droughts, extreme weather and empowered consumers mean tough choices for farmers


Having set aside the cheapest option of open-tender buybacks and declaring support for irrigation subsidies, the problem the government now faces is that it must explain why closed tenders persisted (albeit in isolated cases) and were signed off by Ministers as good value for money.

Closed tenders need not deliver a poor outcome for taxpayers. But it does mean the likelihood of establishing the best value for money is reduced, simply because there are fewer reference points.

And if it’s legitimate to overspend public money on irrigation infrastructure subsidies, the credibility of a supposedly cost-effective closed tender is also brought into question.The Conversation

Lin Crase, Professor of Economics and Head of School, University of South Australia

This article is republished from The Conversation under a Creative Commons license. Read the original article.